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Hindustan Media Venture Limited – in a
sweet spot
Executive Summary
Hindustan Media Venture Limited is the Hindi newspaper segment of HT
Media. It is the leader in Bihar and Jharkhand and No 3 player in UP. HMVL is
currently in a sweet spot, having just completed expansion in UP. It is a pure
play on regional growth. With its leadership in Bihar and Jharkhand, the two
fastest growing states, its revenue and profits will reflect this high growth.
We expect EPS to grow at 29% CAGR over FY11-FY14. HT’s plan to enter new
ventures such as Education and TV content are worrisome. We initiate the
stock with a Buy and target price of Rs 186 implying 47% upside.
Business on uptrend
HT Media’s Hindi business was demerged into its subsidiary HMVL in Dec 2009.
Hindustan is the third most read daily with presence in UP, Bihar, Jharkhand and Delhi. It
has been on an uptrend, gaining readership consistently over the year. It has been
expanding in UP over the past few years. The expansion phase is now near complete, and
Hindustan is now the No. 3 player. With circulation growth completed and readership
growth visible in numbers, Hindustan is now in the monetization phase. Hindustan is a
pure play on the growth in the Hindi belt. With its leadership in Bihar and Jharkhand, the
two fastest growing states, its revenue and profits will reflect this high growth.
High cash generation
Hindustan is in a stage where its expansion is completed and growth in revenues will lead
to stronger profit growth. It will be a cash cow for the firm with increasing profitability.
Given that Bihar and Jharkhand make up a large part of the revenue base and are growing
faster than the rest it will see slightly better revenue growth. The faster growth in FY12
will be offset by low circulation cost. We expect revenue to grow at 15% CAGR over the
next three years. This will lead to a stronger growth in profits which we expect to grow at
29% CAGR.
Capex plans a worry
While Hindustan’s core businesses is in a sweet spot with strong growth and rising cash
flows, future capex plans are a worry. The two main concerns are 1) the education space,
where HT has plans for a large entry and 2) Content generation for TV. Education is the
main focus of the group and will be a high risk, high reward venture, much diverse from
the current business.
Valuation
HMVL has been the worst performing stock in the sector this year and is down 30% YTD.
The stock’s underperformance has been in contrast to its promoter company HT Media
which is down only 5% YTD. The stock is currently trading at 12.7x FY13 PE, one standard
deviation below HT Media’s historical 12m fwd PE. Given the strength of the business and
strong 29% EPS CAGR over the next three years, we believe there is much value in the
stock. We value the firm at an average of 17.3x FY13 PE (10% discount to historical PE of
HT Media) and DCF-based target value. We initiate the firm with a Buy and a target price
of Rs 186 implying an upside of 47%. We use a higher risk factor for the firm as we remain
cautious on the new ventures. Clarity on new ventures and their size will provide us more
comfort on the stock.
Risks
The main risks to our valuation are 1) High capex intensity in new business with long
gestation, 2) slower GDP growth, 3) Increase of competition, 4) Fluctuations in newsprint
prices and 5) Slowdown in literacy rates improvement from current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Media Venture Limited – in a
sweet spot
Executive Summary
Hindustan Media Venture Limited is the Hindi newspaper segment of HT
Media. It is the leader in Bihar and Jharkhand and No 3 player in UP. HMVL is
currently in a sweet spot, having just completed expansion in UP. It is a pure
play on regional growth. With its leadership in Bihar and Jharkhand, the two
fastest growing states, its revenue and profits will reflect this high growth.
We expect EPS to grow at 29% CAGR over FY11-FY14. HT’s plan to enter new
ventures such as Education and TV content are worrisome. We initiate the
stock with a Buy and target price of Rs 186 implying 47% upside.
Business on uptrend
HT Media’s Hindi business was demerged into its subsidiary HMVL in Dec 2009.
Hindustan is the third most read daily with presence in UP, Bihar, Jharkhand and Delhi. It
has been on an uptrend, gaining readership consistently over the year. It has been
expanding in UP over the past few years. The expansion phase is now near complete, and
Hindustan is now the No. 3 player. With circulation growth completed and readership
growth visible in numbers, Hindustan is now in the monetization phase. Hindustan is a
pure play on the growth in the Hindi belt. With its leadership in Bihar and Jharkhand, the
two fastest growing states, its revenue and profits will reflect this high growth.
High cash generation
Hindustan is in a stage where its expansion is completed and growth in revenues will lead
to stronger profit growth. It will be a cash cow for the firm with increasing profitability.
Given that Bihar and Jharkhand make up a large part of the revenue base and are growing
faster than the rest it will see slightly better revenue growth. The faster growth in FY12
will be offset by low circulation cost. We expect revenue to grow at 15% CAGR over the
next three years. This will lead to a stronger growth in profits which we expect to grow at
29% CAGR.
Capex plans a worry
While Hindustan’s core businesses is in a sweet spot with strong growth and rising cash
flows, future capex plans are a worry. The two main concerns are 1) the education space,
where HT has plans for a large entry and 2) Content generation for TV. Education is the
main focus of the group and will be a high risk, high reward venture, much diverse from
the current business.
Valuation
HMVL has been the worst performing stock in the sector this year and is down 30% YTD.
The stock’s underperformance has been in contrast to its promoter company HT Media
which is down only 5% YTD. The stock is currently trading at 12.7x FY13 PE, one standard
deviation below HT Media’s historical 12m fwd PE. Given the strength of the business and
strong 29% EPS CAGR over the next three years, we believe there is much value in the
stock. We value the firm at an average of 17.3x FY13 PE (10% discount to historical PE of
HT Media) and DCF-based target value. We initiate the firm with a Buy and a target price
of Rs 186 implying an upside of 47%. We use a higher risk factor for the firm as we remain
cautious on the new ventures. Clarity on new ventures and their size will provide us more
comfort on the stock.
Risks
The main risks to our valuation are 1) High capex intensity in new business with long
gestation, 2) slower GDP growth, 3) Increase of competition, 4) Fluctuations in newsprint
prices and 5) Slowdown in literacy rates improvement from current levels.
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